In the face of mounting pressure from Catholic leaders and politicians, the White House on Friday tweaked its position on contraception coverage mandates in the Affordable Care Act. Rather than require large religious institutions like Catholic colleges and hospitals to provide employees with free health insurance coverage for contraception, insurance companies themselves will have to pick up the tab. “We fought for this because it saves lives and it saves money,” President Obama said in a midday appearance at the White House. “As we move to implement this rule, however, we’ve been mindful that there’s another principle at stake here. That’s the principle of religious liberty.'”

Here’s how the new rule will work: A Catholic hospital will provide health insurance to employees that does not include contraception; the insurance company servicing the hospital will reach out to female employees and offer contraception or contraception coverage without any copays or coinsurance. At least one powerful Catholic organization has already endorsed the change.

On a conference call with reporters, senior Administration officials pointedly called the change an “accommodation,” not a compromise, and said that the new policy had actually been in the works for a long time. This seems unlikely, given that this more nuanced contraception setup has been floating around in policy circles for months and the Administration opted to initially present a more stringent set of insurance guidelines for religious organizations.

The time lapse between the initial policy and its new and improved version allowed a major political storm to develop. Despite the best efforts of Catholic power players in the Obama Administration, the President appears to have made his original decision based on women’s rights, but also on politics. As I and others have previously written, it seemed – on paper – that requiring large Catholic institutions to provide free contraception to employees would be a net political positive. By a fairly thin margin, U.S. Catholics agree with the President’s position; an even larger margin of support than among women.

But the upheaval over free contraception may well end up being a net negative for the President because it fed into an already existing narrative that Obama is shoving the Affordable Care Act down Americans’ throat. Case in point – the impending Supreme Court fight over the individual mandate, which is one of the most easily demonized government policies in history. Despite its economic merits and success elsewhere (Massachusetts), the very word “mandate” evokes a bossy, inflexible federal government, not to mention that the individual mandate would require Americans to spend their own money on a product they might not even want. This dynamic was even more pronounced as the Catholic institutions moved to battle the contraception ruling; not only did these organization not want to buy the product (contraception), but it went against the tenets of their faith to do so.

Much of this controversy could have been avoided, if the White House had sought to broker a compromise from the very beginning. As Amy Sullivan pointed out on Swampland back in November 2011:

What could the Obama administration have done differently? For starters, it seems clear that any religious exemption was going to be met with fierce resistance from abortion rights organizations. Given that reality, HHS could have gonewith a broader definition of religious employers it is considering–one used by the IRS that includes organizations whose employees aren’t necessarily all members of the same faith. After all, even with the religious exemption, the HHS mandate represents the biggest expansion of contraception coverage in American history. That’s a fairly strong case for the White House to make withpro-choice groups.

HHS could also have taken up a solution suggested by Melissa Rogers, a professor at Wake Forest University Divinity School and a former member of the White House Advisory Council on Faith-Based and Neighborhood Partnerships. As Rogers has written, some states like Hawaii and New York require insurance companies to “allow enrollees in a health plan of an objecting religious employer to purchase coverage of contraceptive services directly and to do so at a cost that does not exceed” what they would have paid under a plan through a non-objecting employer.

One aspect of the new policy as yet unaddressed by the Administration is what would happen in the case of a large religious organization that is self-insured – as many Fortune 500 companies are. For an institutions like this, insurance companies like Cigna or UnitedHealthcare are merely claims processing paperwork pushers, with the institution actually holding premium dollars and paying for health services. Would these organizations – via their claims processor – have to reach out to female employees and offer birth control pills?

In addition, although a senior administration official said Friday that the new policy will prohibit insurers from charging higher premiums to pay for the cost of 100% covered birth control, it’s not entirely clear how this would be enforced. Insurers always pass on their costs to consumers; they’re not in the business of absorbing costs. That said, as an Administration official pointed out, providing birth control actually saves insurers money they would otherwise spend on unintended pregnancies. (See here for more.)

The whole escapade is a reminder of how much more complicated the U.S. health insurance system is because of its entanglement with employers, many of whom – if they could design a new system from scratch – would have nothing to do with health insurance at all. Employer entanglement is not likely to change anytime soon; destabilization of it could be catastrophic. And so long as employers, who may have their own beliefs about lots of health care coverage details, are still at the helm, these kinds of dustups are always a possibility.